Kamchatka welcomes the world

September 2014 www.euromoney.com

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Contents

Vladimir Ilyukhin: Kamchatka becomes a very attractive investment platformAgainst the background of stellar economic growth across the Asia Pacific region, Russia’s Far East is

becoming steadily more attractive from the viewpoint of developing the region 2Kamchatka’s new frontierRemote and sparsely populated, Kamchatka has the potential to become a commercial hub as Arctic shipping routes develop and rich resources are exploited 4

Laying the foundationsKamchatka is going all out to build the infrastructure needed to support development of its rich resources8

“Peaceful people with a real hope for their future”Nikolay Pegin, director-general of the Kamchatka Development Corporation,

explains the corporation’s functions and highlights areas of investment potential 6

The call of the wildKamchatka has much to offer the adventurous

tourist, from winter sports to wilderness 10Digging inMining firms are drawn to a region on the cusp of turning into a major new producer of energy, minerals and precious metals14

Gateway to the ArcticKamchatka’s isolation is coming to an end with the opening of the

Northern Sea Route, bringing a raft of other benefits in its wake 16Growth storyRich agricultural land and plentiful water supplies are among Kamchatka’s formerly neglected assets17

In the pinkFamous for its unsurpassed Pacific salmon resources, Kamchatka’s

fishing industry remains a mainstay of the peninsula’s economy 18Land of opportunityInvestors are becoming increasingly aware that Kamchatka has the resources and opportunities to support a long-term growth story20

SPECIAL REPORT : KAMCHATKA · September 2014 www.euromoney.com2

Vladimir Ilyukhin

ACCORDING TO NUMEROUS experts, it may very soon

become a base for developing the economy of the entire Russian

Federation. The Kamchatka region is a part of the Far East

that has recently been given new momentum in its economic

development. According to governor Vladimir Ilyukhin,

Kamchatka, long known for its teeming biological resources and

vast reserves of natural resources, may soon become a major

logistical transport centre, providing Russia with a direct and

highly profitable economic link to the Asia Pacific region thanks

to the increasingly important Northern Sea Route.

Kamchatka, a region of strategic development for RussiaThe Far East is currently the centre of great attention. Russia sees

this region as very promising indeed, as do societies across the

entire world. To develop the Far Eastern territories is to invest

in the future of the country, and proximity to countries across

the Asia Pacific, with rich resource potential, provides us with a

direct gateway to the global economy.

Of course, as with many remote areas, there are many

infrastructural barriers, and economic development is currently

slow. In these conditions, one of the main tasks of the regional

authorities is to make this area as attractive as possible for

business. Investors need conditions that show the territory’s

interest in them. At present, we have a whole range of measures

to support business. There is talk of various financial incentives

and tax advantages, especially in the areas of greatest priority for

the region. For example, we recently introduced tax advantages

for investors realizing large-scale agricultural and mining

projects. Of course tourism and fishing industry projects are also

of the highest priority to us.

Fishing industry: aquaculture development progressKamchatka is traditionally considered the country’s greatest

source of fish. Our fishermen, in fact, catch a quarter of all

Russia’s fish yield. Over the past five years the Kamchatka region

has become Russia’s leader in terms of water bio resources, and

the fishing industry is one of the main pillars of the region’s

economy. And it’s not just about tax revenues; it’s also about

food safety and employment for the region’s populace.

Considering the significance of fishing in the region, we

develop new mechanisms for supporting fishing companies

every year. Particular attention is being paid to development of

aquaculture in Kamchatka. The peninsula is currently one of the

few places in the world where almost the entire salmon catch

is of natural origin, but we understand the need to maintain

the sustainability of this important natural resource. The

practice of artificially breeding salmon is carried on all over the

North Pacific, where over 700 salmon-processing factories are

operating. Development of the fishing industry for us is not just

a matter of preserving and increasing our salmon population,

but of providing Russia and our trading partners across the

Asia Pacific region with valuable fish stocks for many years to

come. For this specific reason, alongside the development of

onshore production, we are emphasizing the development of

aquaculture. This area is of great interest to potential investors

and we are ready to provide them with state support.

New development in miningAnother highly significant area for Kamchatka is the

development of fossil fuels extraction. In recent years, this

sector has started enjoying an upturn after a long break. Our gas

extraction levels have significantly increased. An ore-mining

industry is developing. Thanks to the launching of many new

facilities and the increased strength of many existing production

bases, volumes of extracted gold, nickel, copper and other

valuable substances have increased by almost a third.

Business, thanks to state support, has started investing more

actively in new production capacities. For the first time in recent

years in Kamchatskiy krai, modern ore-mining and processing

enterprises are being built. Our plan for the next 10 years is to

increase volumes of gold extraction of up to 10-12 tonnes per year.

Against the background of stellar economic growth across the Asia Pacific region, Russia’s Far East is becoming steadily more attractive from the viewpoint of developing the region

Vladimir Ilyukhin: Kamchatka becomes a very attractive investment platform

www.euromoney.com SPECIAL REPORT : KAMCHATKA · September 2014 3

Kamchatka as a tourist centreKamchatka has always been known for its stunning beauty.

Wild mountain rivers, geysers of boiling water, medicinal hot

springs, snow-covered volcanoes and solidified lava flows – all of

these attract tourists from across the world. People now visit the

peninsula in summer and winter to relax, go fishing, swim in

hot springs, visit a Koryak nomad camp, enjoy dogsledding and

see the Valley of the Geysers for themselves. Lovers of extreme

tourism can enjoy diving, rafting along mountain rivers or a

climb up Klyuchevskaya Sopka, the highest volcano in Eurasia.

Kamchatka is a brand. Nobody doubts that the peninsula is a

unique place. It is very important for us to create comfortable

conditions for our guests. In recent years we have been actively

involved in creating new lines of air communication in an

effort to attract more tourists from Asia Pacific countries, and

are working on an infrastructure and investment platform for

developing the hotel business.

Agriculture We have great hopes for the development of agriculture. We

understand that Kamchatka is a risky area for arable farming, but

the region has huge empty areas of agricultural significance and

unique geothermal water sources. These could be used to heat

greenhouses and grow ecologically friendly vegetables all year

round for consumption on domestic and foreign markets.

Infrastructure development progressRealizing many projects will be difficult without a developed

infrastructure, our first task is to develop our engineering

and transport infrastructure. We are currently completing

reconstruction of Kamchatka’s main airport, which connects

the ‘region’ with the ‘continent’. This project, costing more

than $400 million, should be completed within the next two

years. During this period, we plan to complete a new airport

building that satisfies all modern requirements. Investors

are being brought in within the framework of public-private

partnerships.

NSR: The strategic northern sea routeOne more important infrastructural project is the construction

of a new seaport in Petropavlovsk-Kamchatskiy, on which work

has already started. Given the development of the Northern

Sea Route (NSR), Petropavlovsk port will be ideal for creating a

major transport and logistics centre. Its geographical location is

favourable, with great transit potential, the region being at the

intersection of major transport and communication routes in

the North-East Pacific.

Mastery of the Arctic passage is a new maritime gateway for

Russia and Asia Pacific. There are many key advantages in using

the NSR – not least because it offers a shorter route between

Europe and Asia and is therefore more economical and efficient

- and Petropavlovsk-Kamchatskiy plays a vital role on this route

as a transit port. The movement of vessels along this route

can draw in substantial new sources of revenue. For example,

Chinese vessels use the NSR more actively for transporting cargo

from Europe to Asia, and vice versa. Already we have started

sending fish produce to central Russia from Kamchatka via the

NSR, with significant reductions in supply times.

It is only a matter of time before the NSR becomes the

principal logistical artery, as the Arctic ice thins. The role

of Petropavlovsk-Kamchatskiy in this process looks very

promising indeed.

Kamchatka open to investorsKamchatka may, and indeed should, become a major platform

for the modernization of the country and a point for the growth

of Russia’s economy. Vast resources are concentrated in it and we

are quite able to become a major logistical transport centre and a

gateway for Russia through the NSR to Asia Pacific countries.

Attracting investment to the region is one of the most

important activities of Kamchatka’s regional government. We

are always open to dialogue and ready to provide help in the

realization of any initiative, from creating favourable conditions

for conducting business to accompanying investment projects.

A major investment forum is planned in Kamchatka in early

September. This is a possibility to find out more about the

most promising investment projects and the resources of the

peninsula, on site. For my part, I guarantee that Kamchatka’s

regional government will provide all the necessary support and

assistance for realizing initiatives, accompanying investment

projects at all stages of realization. We are always open to

dialogue and are ready to become reliable partners.

“Kamchatka is a brand. Nobody doubts that

the peninsula is a unique place”

Vladimir Ilyukhin

SPECIAL REPORT : KAMCHATKA · September 2014 www.euromoney.com4

Introduction

LOOK AT THE map of Russia and you soon notice Kamchatka.

It lies in the east of the vast, resource-rich Russian Federation,

washed by the Pacific Ocean. An expansive peninsula, shaped

a little like Indochina, it stretches south from far eastern

Siberia, towards Japan. Kamchatka is part of the Far Eastern

Federal Region. It occupies the Kamchatka Peninsula and

adjacent continental territory, as well as the Komandor and

Karaginskiy Islands. Remote is a word that hardly does it justice:

a population of roughly 320,000, more than half of whom live

in the bustling capital, Petropavlovsk-Kamchatskiy, occupies

a landmass of more than 460,000 square kilometres – an area

larger than New Zealand, Great Britain or Italy.

Between Petropavlovsk-Kamchatskiy and Moscow lies

almost 12,000 kilometres of tundra and farmland. It’s actually

quicker to fly direct to Los Angeles from here. Kamchatka lies

equidistant between the Russian capital and Chicago. Yet this

remoteness, once a curse, is soon to become a blessing. In

years to come, many people will find their gaze drawn toward

Kamchatka, for several reasons.

Arctic route opens upFirst and foremost, commerce. It may seem a stretch to suggest

that so remote a place could come to play a major role in the

ebb and flow of global trade. But it will. The Northern Sea Route

(NSR), once a pipe dream, is fast becoming a reality as the Arctic

ice melts. In 2013, no fewer than 72 commercial vessels used

the NSR, up from just four in 2010, turning away from the Suez

Canal as the route of choice between Europe and Asia.

Moreover, commerce is a double play here because of

its favourable geographic location. Kamchatka lies at an

intersection of international air routes between Europe,

North America and Southeast Asia. It is on the main shipping

highways of the North-Eastern Pacific, and the Russian

government sees Petropavlovsk-Kamchatskiy as a principal

port on the NSR. All container ships heading to and from

Asia through the NSR have to pass the city, on the peninsula’s

eastern coastline.

Petropavlovsk-Kamchatskiy’s potential as a hub for cold

storage, transhipment services and maritime maintenance

will only grow as trade soars and as sea-lanes further open up

in the Arctic. After all, the distance between Yokohama and

Rotterdam via the Indian Ocean is 11,205 miles. Through the

NSR it is 3,860 miles fewer. The time saved is 300-320 hours, or

11-12 days. It is not just time that is saved. Fuel savings are also

substantial. Of course the creation of a hub port is a long-term

strategic project; but it is already quite clear that NSR shipping

will develop and cargo volumes will increase.

Resources awaitSecond, energy and commodities. Kamchatka’s rich earth conceals

a wealth of the world’s most valuable commodities, including an

estimated 270 million tonnes of high-quality black coal. Local

Remote and sparsely populated, Kamchatka has the potential to become a commercial hub as Arctic shipping routes develop and rich resources are exploited

Kamchatka’s new frontierIm

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www.euromoney.com SPECIAL REPORT : KAMCHATKA · September 2014 5

authorities have plans to boost gold production up to 10 tonnes

a year by 2020, from 2.5 tonnes at present, and silver production

to 15 tonnes from 2 tonnes. The region is also set to become an

increasingly important cog in the global energy industry, boasting

vast reserves of gas and up to 10 billion barrels of oil. Many view

Kamchatka as the next Sakhalin - the vast, hydrocarbon-rich

island lying off northern Japan - and a key link in Russia’s energy

sector. “We have enormous reserves of natural resources and, if we

explore and exploit them well, and sustainably, Kamchatka will be

a great long-term place to invest,” says Vasiliy Priydun, minister

of natural resources and ecology of Kamchatskiy krai. European,

Asian and North American energy firms have been eyeing major

investments in the region for years; as Kamchatka’s infrastructure

improves, those dreams will become a reality.

Third, natural resources. Kamchatka boasts great natural

beauty. Untouched by civilization, it offers thermal and

mineral springs, magnificent volcanoes and wonderfully

clean lakes and rivers, all of which are natural assets that

create unrivalled opportunities for ethnic, ecological and

extreme tourism. The peninsula has about half of the world’s

population of white-headed sea eagles and more than 10,000

brown bears. The fishing industry is growing fast, with

investment in fish farming pouring in from China and Japan.

Kamchatka-branded salmon, some of the best in the world, is

now a popular feature of East Asian dinner plates.

Last but not least, tourism. In recent years the tourism

infrastructure in the region has mushroomed. The most

attractive areas have seen the development of camp sites,

shelters and hunting camps.

Competitive advantagesWe can see that the Kamchatka Region has a whole series of

fundamental advantages in the competition, including its

proximity to Asia Pacific countries, key targets for regional

produce, its favourable ecological situation, the presence of

world-famous cultural and natural monuments, and a wealth of

tourist and recreational resources.

Many modern explorers, notably those with a yen for

the wilderness, are keen to visit destinations that are new,

unspoiled and distant-but-accessible, and which offer a

landscape blessed with myriad adventure opportunities.

Kamchatka ticks all those boxes. Winter travellers come here

to go skiing and heli-skiing on the region’s many slopes. The

peninsula boasts over 1,000 volcanoes - 29 remain active.

Kamchatka boasts astoundingly beautiful nature reserves and

the amazing Valley of the Geysers, voted one of the Seven

Wonders of Russia in 2008.

Indeed, the soaring Klyuchevskaya Sopka, heart of the

peninsula and embodiment of Kamchatka’s wild ruggedness, is

the highest active volcano in Eurasia at 4,750 metres. The region

is also a haven for bird and whale spotters, for river and deep-sea

sport fishermen, and for those seeking genuine wild terrain to

explore. Nor does the peninsula attract only the most weather-

hardened of travellers or investors. The warming waters of the

Pacific Ocean provide Kamchatka with a temperate climate.

There are four distinct seasons, helping guarantee the peninsula

‘Goldilocks’ weather: not too cold in winter, and not too hot in

summer, but just about right.

It’s hard to think of many reasons not to consider Kamchatka

in your investment or travel thoughts. Investors will come

for the manifold opportunities springing up in a region

increasingly enmeshed with the global trading community, and

stay for the skiing, the fishing and the experiences provided by

one of the world’s last great untapped frontiers.

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SPECIAL REPORT : KAMCHATKA · September 2014 www.euromoney.com6

Nikolay Pegin

What is the role of Kamchatka Development Corporation?Investment today is the most important factor in developing an

economy. Kamchatka Development Corporation (KDC) seeks,

through the sensible organization of interaction between those

involved in the investment process and those in power, and

through financial institutions, to create conditions that will help

investors assess territorial distribution and choose the support

measures provided in the region.

Our task is also to create conditions in which investors come

to us to feel comfortable. KDC is a special form of processing

plant that takes ideas, realizes them and then promotes them.

One of the most important tasks is reducing the time taken to

approve an investment project after the investor obtains the

multilateral assistance at the initial, and most difficult, stage. We

become the original mediator between state, investor and local

population. Our work must bring about a quick and high-quality

reconciliation of the interests of everyone involved.

To attract investment one must react efficiently, almost

instantly. Delay is a death sentence. Our task also includes

speeding up the agreement process, reacting instantly to

proposals from investors and to requests for social and economic

development. The state cannot always participate directly in

financing a project. The KDC then becomes a key instrument

with its partnerships between the state and private businesses.

We participate not only with our resources, but also with our

skills and powers and the ability to find finance sources in

companies and institutions interested in realizing investment

projects in Kamchatka. We represent Kamchatka’s interests,

reconciling them with potential investors’ interests.

Which areas of industry do you wish to support and develop? There are hundreds of areas in which investing in the Kamchatka

economy could be profitable, but the list would cover many

pages. However, there are areas in which return on investments

will be very high, as indeed will be the interest of both authorities

and population. Some of the most promising areas include

minerals and raw materials, tourism, freshwater and sea fishing,

processing of seafood, and energy and communal reforms.

Kamchatka has a unique reserve of underground resources.

Of greatest importance for the economy are four gas-condensate

deposits, 16 thermal energy underground water reservoirs,

62 gold deposits, five widely scattered platinum-group metal

deposits and underground fresh water deposits in Russkaya Bay.

Nature in the region is remarkable, with many thermal and

mineral water sources, magnificent volcanoes and mountains with

permanent snow and glaciers, numerous rivers and lakes with

salmon spawning grounds, areas of volcanic activity, wild areas

untouched by civilisation, and spectacles of nature known the

world over, such as the Valley of Geysers, the Uzon volcanic crater

and the Kamchatka Volcanoes Nature Park. Tourism in Kamchatka

is already well developed, although further development is

hampered by lack of infrastructure. We have major projects to

develop skiing resorts in association with Canadian partners,

and have signed a memorandum to work with the French Alps

Development Association. We have agreed to create areas that do

not resemble the French or Swiss alpine resorts but are unique to

Kamchatka and can be used all year round.

In addition, it is well worth mentioning opportunities

in freshwater and sea fishing and seafood processing. More

than 20% of all fish and other seafood in Russia comes from

Kamchatka. Through the provision of state support, fish-

production enterprises have, in the period 2008-13, invested

over Rub11 billion ($305 million) in the development of their

industry, constructing 16 modern factories on the shores of the

peninsula to produce high-quality and profitable fish products

with cutting-edge technology, which has helped increase

production capacity to over 3,500 tonnes per day. The cold

storage capacity for fish products has been increased by over

30,000 tonnes and an additional 1,700 jobs have been created.

Russian shipyards have built seven small vessels designed

for fishing close to the shore and supplying catches with bio-

resources in local territory for subsequent further processing in

onshore factories. Salaries of those working in the sector have

increased from Rub29,000 to Rub48,000. Not only that, but

the positive development of the fishing industry is reflected

in overall indicators in the last five years, including increased

volume of catches, increased volumes of fish foodstuffs produced

and increased investment. The region’s rivers are spawning

grounds for every species of wild Pacific salmon; this is a feature

unique to Kamchatka. Investments in the fishing industry look

very promising to us.

Another promising area is wood processing. A joint Russian-

Italian business has been created and will start trading soon;

its modern European wood-processing equipment will make

sensible use of the peninsula’s forestry reserves and the finished

products will be used for low-rise housing, one of several

Nikolay Pegin, director-general of the Kamchatka Development Corporation, explains the corporation’s functions and highlights areas of investment potential

“Peaceful people with a real hope for their future”

www.euromoney.com SPECIAL REPORT : KAMCHATKA · September 2014 7

promising housing construction projects in Kamchatka.

The region is rich in resources but, to master them, a hitherto

lacking infrastructure is required. The problem can be solved in

several ways: by finding major investors willing to bear the full

cost of creating it, or by creating a partnership between state and

private sector (the state creates the necessary infrastructure while

the investor organizes production) to produce an area of special

development. We are involved in preparatory works on four

such areas. A number of reliable organizations and investment

funds have already expressed interest. We will do everything to

help these new partners.

Overall, KDC is becoming the unique ‘entry point’ to the area

for potential investors and for business. We speed up and simplify

the investment process and answer all questions that investors

have. The number of proposals, and their level of preparedness, is

continually increasing, as is interest from widely varying investors,

from experienced Pacific and Asian investors to European

investors, all taking an ever-increasing interest in Kamchatka.

How will you determine which projects and companies to support? Every project and idea is examined thoroughly. First and

foremost, of course, we accept projects that appear to benefit not

only potential investors but also the region. Social and economic

aspects will be given priority. We will choose the projects that

are best prepared, that rely on serious scientific research and

require the least expenditure to turn them into viable business

proposals. The economy is a very fluid environment. We

endeavour to react to world economic trends quickly, almost

instantly where possible.

Working together to realize investment projects will be

multilateral, involving reduction and simplification of

procedures connected with issue of permits and with connection

to communication networks. The tax system is becoming

steadily more investor-orientated, and there are other incentives.

What are the main reasons foreign investors should invest in Kamchatka?There is a unique chance to invest in projects in an area that

will provide not only return within a sensible time, but also

much greater profits than in larger regions. The dynamic of

the economic situation in Kamchatka over recent years has

been positive. Today, also, Kamchatka is of intercontinental

importance in the world transport system. The presence of

an ice-free port in the Northern Passage, and the favourable

geographical location on an intersection of air routes, opens up

possibilities for creating a hub connecting America, Southeast

Asia and Europe.

The waters around Kamchatka contain the region’s principal

source of wealth: reserves with unique value and diversity of

biological resources. In recent years, Kamchatka region has

become a Russian leader in the catching and processing of fish

and other seafood.

Development of a raw material and mineral complex is

planned because of the great wealth of natural resource

potential: everything from gold and platinum to hydrocarbons.

On a worldwide scale, Kamchatka is a unique natural territory,

with a huge wealth of tourist and recreational resources. The

region is one of the most ecologically successful areas in Russia.

Thermal and mineral sources, volcanoes and glaciers, and the

largely untouched flora and fauna, provide great opportunities

for developing all types of tourism: skiing and mountaineering

tours, fishing and hunting trips and charter flights and cruises,

and the creation of spa resorts. Far-sighted business people will,

of course, recognize the potential of Kamchatka!

What are the plans to create new industrial parks in Kamchatka in future?Agropark Nagorny is one of the most promising investment

projects in the region. Kamchatka currently depends almost

entirely on imported agricultural products. That, in the

perception of many, is the norm; but it is far from right. Even

in the 19th and early 20th centuries, the peninsula fed not

only its own population, but the adjoining Far East territory,

with its vegetable production. Now, we are bringing back that

tradition. The plan is to make Nagorny a regional centre for

agrarian production and trade. Its 121 hectares will contain

huge hothouses with modern vegetable-growing technology,

processing companies, and warehouses for storing farm and

agricultural produce, as well as a farmers’ market and a trading

and exhibition area. Through state finance, it is planned to

create conditions for developing agricultural production,

engineering networks (gas pipeline, electrical networks, water

provision and removal systems), roads and platforms. It is

planned to build other industrial parks, but in other directions.

How do you see Kamchatka’s future economy in terms of growth and development?Kamchatka’s future is the future of a unique region that

combines geographical and logistical opportunity and the

function of a transport centre. This is not just a place to pass

through, but a centre for the fishing and fossil fuel industries and

an area with a developed agricultural and industrial system and,

of course, opportunities for ecotourism. Volcanoes and geysers,

hunting and fishing, and a developed tourist infrastructure,

combine to create an atmosphere that rivals that of a beautiful

Maldivian beach or the magnificence of Italian architecture.

The main thing is that this is the home of generations of

peaceful people with a real hope for their future. This is what we

are working for!

Nikolay Pegin

SPECIAL REPORT : KAMCHATKA · September 2014 www.euromoney.com8

Infrastructure

KAMCHATKA’S INFRASTRUCTURE IS improving rapidly. But

more investment is needed to realize the full potential of one of

the world’s great untapped frontier regions.

Today, the main area of activity by Kamchatka’s government

is the development of the region, increasing inter-regional and

international economic connections, and the active promotion of

investment potential at both domestic and international level.

Infrastructure also offers investors an immediate as well as a

sustainable way of being part of the region’s long-term growth

story. Better infrastructure is key to this process. New factories

are being built and better air connections are being developed,

with more than Rub3 billion ($83 million) being pumped into

the construction of new roads and bridges. Yuri Zubar, deputy

chairman of the government of Kamchatskiy krai, has stated

that in 2014 the region will build more than 1,000 kilometres

of new motorway, linking Petropavlovsk-Kamchatskiy with

new production complexes and tourist sites, generating obvious

benefits for the regional economy.

Zubar points to the capital already being invested in

improving the region’s superstructure. Petropavlovsk-

Kamchatskiy airport is being modernized, with reconstruction

of take-off and landing strips, and the construction of a new

airport terminal, with modern transit points, planned as part of

a public-private partnership. It is expected that the main airport

of Kamchatka will serve both domestic and international airline

passengers, with the total cost estimated at Rub4.5 billion.

Kamchatka is also planning the construction, in the immediate

future, of a major new seaport, equipped with a modern

international transit point, which will play a major part in the

development of the tourism sector.

New routes east and westAs the new airport expands, it is expected to open up routes to

East and Southeast Asia, and North America. Charter flights have

already been organized between Petropavlovsk-Kamchatskiy and

Tokyo, as well as Anchorage. But local officials hope to see the

roll-out of commercial routes connecting the region with cities

such as Seoul and Beijing and other major population centres,

thus increasing the annual flow of incoming tourists to more

than 100,000.

“We need a new airport in order to become a true regional

hub for international carriers and air transport,” notes Zubar.

Adds Gevork Shkhiyan, head of the government’s Travel and

External Affairs Agency: “The first aim is to increase flights

between here and the Pacific Rim, starting with Japan, with

which we have excellent relations in the field of tourism. We are

also hoping to become a place of interest for flows of Chinese

and Korean tourists; the introduction of commercial flights will

be a major step in that direction.”

Shkhiyan notes that the aim is two-fold: to develop the region’s

infrastructure “without damaging the environment”, while being

as transparent as possible with investors. “Without a wider and

better infrastructure, it is impossible to attract investors,” he adds.

“And it is possible to attract good investors by putting all of our

cards on the table and explaining exactly what we are doing.”

Solid investmentKamchatka offers an unusually solid investment programme,

based on an abundance of commodities and natural occurring

resources, from minerals and energy to clean water and

agricultural goods. Kamchatka is acquiring intercontinental

significance due to its prime location at the nexus of air and sea

routes connecting North America, Southeast Asia and Europe.

This means that the main area of development is connected

with the upturn in activity on the Northern Sea Route, which

is becoming a major asset in the world economy and is in the

Russian Federation’s zone of strategic interests.

Weather conditions have made the port of Petropavlovsk-

Kamchatskiy one of the key points in the Northern Sea Route.

It is here that the prerequisites for creating a powerful maritime

transport and logistics infrastructure, with modern terminal

complexes and innovative service and business centres that satisfy

international regulations and standards, are fulfilled through the

transport and dispatch service complex and the organization of

an uninterrupted high-technology transport service.

The process has already begun. Around Rub3 billion is being

spent on the construction of new deep-water port facilities.

Investors can clearly see the wisdom of channelling capital into a

region that stands to benefit enormously from the opening up, in

the years to come, of the Northern Sea Route, which will slash the

current time and cost of shipping goods between Asia and Europe,

via the Arctic Ocean.

Kamchatka is going all out to build the infrastructure needed to support development of rich resources

Laying the foundations

Project of new airport

www.euromoney.com SPECIAL REPORT : KAMCHATKA · September 2014 9

Tourist attractionsBetter infrastructure will also mean more tourists. Already, the

region teems with a dizzying array of outbound activities for

the adventurous, from deep-sea and river fishing to hunting

and bird watching. Climbers arrive to tackle the region’s

soaring, snow-clad volcanoes. People travel to Kamchatka

in both summer and winter to bathe in hot springs, enjoy

dogsledding and delight in clear, fresh mountain air. Lovers

of extreme tourism go rafting or diving in mountain rivers,

while those who feel particularly bold can travel up the highest

volcano in Eurasia, Klyuchevskaya Sopka, with experienced

instructors. But more needs to be done to boost regional

infrastructure – only then, admits Zubar, “can we fulfil our

considerable economic potential”.

New infrastructure projects are springing up around the

region. These include a new Rub90 billion hydroelectric dam to

the north of Petropavlovsk-Kamchatskiy in Zhupanovskiy, which

will generate more than 2MWh of electricity. Construction of a

new water purification system, costing around Rub14 billion, is

also planned, to serve the leading towns and cities. Roads and

ports are also being built that will allow mining firms to gain

access to remote parts of the interior, with its vast reserves of

coal, gas, silver, oil and gold.

Sustainability in mindIn each case, says Oxana Gerasimova, deputy minister of

economic development, business and trade of Kamchatskiy

krai, new infrastructure projects will aim for two things. First,

they will be designed with sustainability in mind. Too many

tourism destinations diminish their own attractions because of

poor long-term planning: roads, hotels, theme parks and entire

new towns are built to cater for new arrivals, destroying an

area’s intrinsic long-term selling point. Kamchatka, Gerasimova

pledges, is not going to make that mistake. Rather, it will seek

capital from investors wanting to be part of a sustainable,

long-term growth story. “The watchword in terms of our

infrastructure development, particularly the building of new

roads, will be ‘slow-and-steady’. We need new infrastructure,

but we don’t want to destroy our ecology.”

Second, regional leaders are rolling out business and

tax incentives for investors keen to plough capital into

infrastructure projects. “We are willing to offer special

conditions including lower tax holidays and lower taxation

rates on major infrastructure projects,” says Gerasimova.

“Removing administrative barriers and directing more capital,

both domestic and foreign, into major infrastructure projects is

absolutely central to our economic future.”

New infrastructure – built with due care and attention for the

environment – is being planned in the mining sector, to bring

metals and energy to market through the construction of new

link roads and ports, notably on the more isolated, western half

of the peninsula.

Then there is the development of the agricultural sector.

Kamchatka governor Vladimir Ilyukhin stated correctly a few

years ago that the region can and indeed must keep itself

supplied agriculturally. This has led to the creation of projects

for greenhouse production of vegetables, a fattening centre for

production of ham and a project to organize broiler production.

Poultry factories are being reconstructed, and egg production

has increased this year. Two milk factories have been built, in

the villages of Milkovo and Zarechnoye, and construction of a

livestock breeding centre is under way. One of the largest major

investment projects is Agropark Nagorny; this will become a

centre of agrarian production and trade in the Kamchatka region.

Covering 121 hectares, it will contain huge greenhouse areas,

processing businesses, warehouses for storage of agricultural

produce, a farmers’ market and a trading and exhibition complex.

Winter sports paradiseThen there is the tourism sector. Parks and leisure facilities are

being planned that will turn Kamchatka into a winter sports

paradise. Billions of roubles are being ploughed into new skiing

complexes that will include such all-weather diversions as spas,

medical facilities for health tourists, water parks and indoor

sporting facilities. Gerasimova says that a new skiing complex

planned in Yelizovo, a few kilometres north of the main airport,

will attract capital by offering 49-year infrastructure leases to

foreign investors, allowing them to generate a cut of the profit

once the complexes are up and running.

More capital though is needed to realize Kamchatka’s vast

potential. In 15 years’ time, the region’s infrastructure will

be largely complete, so for global investors looking to embed

themselves in, and profit from, one of the world’s rising frontier

regions, time is of the essence. Kamchatka is open to dialogue

and to working together for the benefit of all.

“The watchword in terms of our infrastructure development, particularly the building of new roads, will be ‘slow-and-steady’. We need new infrastructure, but we don’t want to destroy our ecology”Oxana Gerasimova

Winter sports

SPECIAL REPORT : KAMCHATKA · September 2014 www.euromoney.com10

Tourism

TOURISM, WHICH ONCE meant sightseeing or relaxing on

a beach, has expanded considerably in recent years. Ever-

increasing numbers of tourists want to see far-flung corners

of the world, where nature has remained untouched. They

want wilderness, rugged terrain, activities that go above-and-

beyond. Above all, they want to be challenged. Kamchatka not

only meets these expectations, but exceeds them. It is one of

the world’s last remaining frontiers, a Klondike for the 21st

century. A vast peninsula stretching 1,250 kilometres south

from the eastern Siberian mainland towards Japan, it was off

limits to outsiders until the 1990s, due to the presence of a

Soviet military base. Slowly, as the Russian Federation found

its economic footing, Kamchatka started reaching out to the

wider world.

Tourists loved what they saw. Kamchatka offers – and this

is no idle boast – some of the greatest outdoor experiences on

the planet. Truly mind-blowing fly fishing, in lakes offering

some of the world’s best, biggest and tastiest rainbow trout.

Heli-skiing on active volcanoes in a region widely perceived

as a rising winter sporting haven. Dogsledding with local

tribespeople, watching truly wild birds – where else today can

tourists have such unforgettable experiences? “The people who

visit Kamchatka, and return to see us again and again, are those

who love nature, and who love the wild, unspoilt wilderness,

of the sort that only exists these days in a few other areas,”

notes deputy minister of economic development, business and

trade Oxana Gerasimova.

Rugged and differentFirst, let’s consider what makes Kamchatka special, and why it

appeals to visitors and investors alike. Andrey Ivanov, minister

of sport and youth policy of Kamchatskiy krai, describes the

region as “rugged and different”. Vasiliy Priydun, minister of

natural resources and ecology, points to the “pristine” nature

of “a great frontier region ripe for exploration”. The head

of Kamchatka’s Travel and External Affairs Agency, Gevork

Shkhiyan, invites “everyone who loves nature in all of its

unspoilt glory” to visit. “We have one bear for every one of our

people,” he adds. “Where else can you find a place like that?”

Contrary to assumptions, the peninsula boasts a surprisingly

temperate climate. This isn’t the depths of the Siberian

hinterland, where the mercury can fall to -60°C. Temperatures

never rise too far, topping out at an average of 12°C at the

height of summer. But nor does the region suffer extreme cold.

Thanks to warm prevailing winds and tides swelling in off

the Pacific coast, the temperature rarely dips far below -10°C,

even in the depths of winter. So come prepared with woolly

jumpers and warm coats, but don’t worry about being chilled

to the bone.

More people than ever are finding their way to Kamchatka’s

clean shores and green hinterland. Tourism, says Shkhiyan, is

the region’s largest and fastest-growing industry. “Currently,

around 50,000 tourists come to Kamchatka every year,” he says.

“That’s good, but we want to do better. We aim to increase that

number to 100,000 in the near term.”

Kamchatka has much to offer the adventurous tourist, from winter sports to wilderness

The call of the wild

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www.euromoney.com SPECIAL REPORT : KAMCHATKA · September 2014 11

These plans are likely to be achieved, and sooner rather

than later. Investors are pushing into the region, attracted by

improving infrastructure and a raft of new activity-related

sporting complexes. Ivanov has held talks with Chinese, Korean,

Italian and Bulgarian companies keen to invest in a new, all-

purpose, year-round resort complex in the area surrounding

Kamchatka’s second city.

A new ski resort is planned for Topolovy mountain, with

three slopes, state-of-the-art European chair lifts and snow-

compacting vehicles. An amusement complex is also planned

that will include paintballing, mountain biking trails, children’s

playgrounds and skateboarding parks. A botanical garden will

also be built, alongside a water park, a spa centre, healthcare

facilities and three- and four-star hotels, as well as a full-

size football stadium. Construction of the entire Paratunka

resort zone will be broken down into seven projects, each

interconnected with the others as part of the overall complex,

but funded as separate investment vehicles.

Total estimated costs for the Paratunka project, which is

set for completion by 2021, will be just shy of Rub7 billion

($200 million), officials reckon. The complex’s infrastructure

is also being built from scratch, including pumping stations, a

sewage treatment plant, power generators, highways, a brand

new electricity sub-station and kilometres of new central

heating pipes. “We have great plans for this park. Investors

can choose sites on which to build,” pledges Shkhiyan. “We

will support their building here and will help ensure that they

get the requisite licences, and of course we will help with the

paperwork. We want to bring in more investment capital into

projects such as these. Our aim is to turn Kamchatka into a

regional centre for tourism and physical development.”

Local officials are exploring a series of incentives to attract

more capital to the region, with the aim of boosting inward

investment in key long-term projects. These include rolling out

tax benefits, financed by local budgets, handing subsidies to

flagship investors and tightening up rules to protect investors’

rights. The region has also created a new government agency,

the Kamchatka Development Corporation, which grants

licences, deals with tax issues and generally acts as a one-

stop shop for investors seeking to know more about, or query

anything relating to, a project or investment in the region.

Unique experienceCentral to this ambition is the region’s snowy hinterland.

Despite the temperate climate, the region’s mountains and

volcanoes remain clad in white throughout the summer. “You

can ski almost all year round,” notes Gerasimova. “In fact,

we offer a unique experience: active tourism, including heli-

skiing on active volcanoes.” Kamchatka is rapidly building up

its infrastructure here. Local charter planes and helicopters fly

skiers out to far-flung mountains across the peninsula; European

firms including London-based Elemental Adventure, and Heliski

Russia, a French outfit based in the Alpine resort of Chamonix,

help to bring the wild Kamchatka outback closer to bankers,

fund managers and general thrill-seekers.

But the region has only just started. Shkhiyan is keen to see

more foreign investment capital flowing into support services.

“We are encouraging more investment into areas like cargo

transport and pleasure trips”, he says. “Surely flying by plane or

helicopter is the best way to travel around Kamchatka, and to

see everything that the region has to offer.”

Nor is that the limit of the region’s ambition. Last year,

Kamchatka was nominated as the preferred training ground

for Russian sportsmen preparing for the 2018 Winter Olympics

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Tourism

in Pyeongchang, South Korea. On top of that, the Kamchatka

authorities are planning to build an international training base

for biathletes; already international biathlon competitions are

being held in Kamchatka.

Winter sports capitalAccording to Ivanov, Kamchatka has every chance of

becoming the world winter sports capital. Much of the

project’s success, he admits, depends first on building up the

region’s infrastructure, and second, creating a world-class

training complex ahead of the 2018 Winter Games. “If Russian

sportsmen perform well in South Korea, they will recognize

the importance of training in Kamchatka. The opinion of

professionals is vital here. People will see we are a great

training place with great conditions, and that we are open to

any sportsperson who wants to train here.”

These are not the Kamchatka authorities’ only plans for

developing the peninsula’s sporting infrastructure. The Canadian

corporation Ecosign has developed plans for mountain skiing

tourism and sport in Kamchatka, including a master plan for

creating a skiing resort at the base of four areas, namely Sopka

Petrovskaya (centre of Petropavlovsk-Kamchatskiy), Avachinskiy

Volcano, Gora Moroznaya and Gora Sedlo (the current training

base) as well as Topoloviy Ridge.

“This is certainly the largest and most ambitious project

in Kamchatka. The overall cost will be over Rub25 billion.

However, the complex will be built in stages,” says Ivanov.

“Every area will work as a separate resort as well as with other

resorts within the complex.”

Kamchatka is a haven for those seeking adventure and new

experiences. The region boasts many active volcanoes, geysers

and hot springs. North of Petropavlovsk-Kamchatskiy are more

than 10 separate holiday areas, where visitors can enjoy hydro-

massage baths or bathe in swimming pools with heated water

straight from underground. Small wonder that Kamchatka is

often called “the living land”.

Turning pointThe next few years will see Kamchatka cement its place as

a frontier tourism destination of choice for travellers from

across the world. Notes Shkhiyan: “We are at a turning

point, where we are moving from a lower to a higher level of

development.” This brave new world includes the expansion

of key sub-sets of the tourism sector in sustainable ways. “We

need to keep in mind the need to grow our economy, and to

expand our tourism sector, but that cannot come at the cost

of destroying the wonderful natural ecology of Kamchatka,”

he says. “We need to find the right balance between ensuring

returns to investors and creating jobs, and protecting the

region’s natural birthright.”

Take fishing, one of the region’s three main industries, along

with mining and tourism. In Kamchatka, tourism and fishing are

closely intertwined. Thousands of visitors come to Kamchatka

each year expressly to fish, both far out in the Pacific Ocean or

in one of the region’s myriad pristine lakes and rivers. Adventure

holiday specialists such as Yellow Dog promise experienced or

amateur fly fishermen the chance to cast their rods into some

of the cleanest waters on earth, surrounded by wooded hills

and mountains (and a few bears – though experienced tour

guides are adept at keeping away from them, or fishing in more

secluded locations). Rainbow trout, wild Pacific salmon and

Asiatic grayling, often reaching sizes now unheard-of in the rest

of the world, can be caught here regularly, and in extraordinary

abundance. Throw them back in the water, or wolf them down

at the end of a long day – the choice is yours. Marina Subbota,

deputy chairman of the Kamchatka government, identifies sport

fishing as well as hunting, which is carefully and restrictively

licensed, as a “key area” of tourism development in the region.

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www.euromoney.com SPECIAL REPORT : KAMCHATKA · September 2014 13

Kamchatka attracts not only lovers of action holidays but

lovers of nature as well. These tourists come to the region to

see white-tailed, golden and sea eagles, falcons and hawks.

There are more cliff nesting birds than anywhere else in the

world, Shkhiyan reckons. At least 122 species of seabird nest on

the cliffs in Avacha Bay, an hour by boat from Petropavlovsk-

Kamchatskiy, making a magnificent sight.

Going with the dogsThen there is dogsledding, the most popular form of travel

in Kamchatka and the oldest tradition of the indigenous

population. As those who have taken part in the annual Iditarod

Trail Sled Dog Race in Alaska will testify, there is nothing like

being hauled around a snowy hinterland by happy, hurrying

huskies. Indeed, Kamchatka’s annual dogsledding races ‘Elizovo

Sprint’ and ‘Beringia’ are already as famous as their Alaskan

equivalent. “Dogsledding is a Kamchatka tradition,” says

Valentina Bronevich, deputy chairman of the government

of Kamchatskiy krai. “It’s a very important event in the local

calendar. People come from across the region to see the races.

It’s also a vital cog in the tourism industry. Our dogs are run for

work, as well as pleasure, and tourists love taking part in longer

or shorter dogsledding races.”

There are many good reasons to visit, and to invest in,

Kamchatka’s tourism industry. It is a sensationally beautiful

and rugged place, offering some of the best, last and most

pristine countryside anywhere in the world. The people are

genuinely friendly. If you are lost, they will help. If you stop

and ask questions in the street, they’re happy to chew the fat.

It remains largely untouched by the impatience and cynicism

of the wider world. “We have museums, great skiing slopes,

great bay trips and amazing monuments to nature, from

volcanoes to geysers,” says Subbota. “The main challenge going

forward will be to improve the infrastructure of the region

– only by doing that will we maximize the tourism sector’s

potential. That’s also where we are specifically counting on

foreign investment capital.”

The tourist industry is actively developing in Kamchatka. This

makes it one of the most promising areas in terms of investment

resources. Construction of a new Petropavlovsk-Kamchatskiy

airport, the main air hub for the region, is planned. This will

attract more visitors from the likes of the US, Europe and Asia,

notes Shkhiyan. “We have regular charter flights to Japan and

Alaska, and we are hoping that international commercial flights

along these routes, as well as to China and South Korea, will begin

soon,” he says. “Only by improving our airport infrastructure will

we be able to realize the full potential of the tourism sector.”

A new deep water port is planned for the capital. This will

act both as a facility for commercial maritime vessels and as a

mooring for cruise liners. As the Arctic Ocean opens up to more

maritime traffic, and as Asia’s tourism sector continues to grow,

more tourists are expected to hop aboard a cruise ship to explore

the glories of the Pacific north.

“As the Northern Sea Route linking Europe and Asia via the

Arctic opens up, Kamchatka will be a key destination for cruise

ship operators,” says Shkhiyan. “To realize this plan, we need

investment.” Yuriy Zubar, deputy chairman of the government

of Kamchatskiy krai, notes that around 20 cruise ships called in

the region’s capital in 2013 alone, a number that, he says, will

“increase significantly” as the infrastructure – notably the new

deep-water port facilities – improves.

We can say with confidence that Kamchatka has ceased to

be on the edge of the world, and is attracting great interest

from investors. This is one of the world’s wild and untouched

areas, with a unique nature. It is difficult to find reasons for not

visiting it. This means that the numbers visiting the peninsula

can only grow, and the tourist industry continue to develop

actively in consequence.

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Mining

THE KAMCHATKA REGION has enormous potential for

investment, with vast reserves of water bio-resources that

have made it the country’s most important fishing area. The

region is blessed with bounteous reserves of precious metals

and carbon-based energy and is now a significant, and in many

ways unique, part of Russia’s natural heritage.

The peninsula’s underground resources make the mining

industry one of the most promising areas of development.

Of greatest interest to investors will be the regions that show

promise for hydrocarbon deposits. The promising hydrocarbon

resources of the continental shelf adjoining the peninsula are

assessed at 6 billion tonnes of oil equivalent.

Marina Subbota, deputy chairman of the government of

Kamchatskiy krai, describes the region as “Sakhalin, 10 years

on”. This comparison with another vast, energy-producing

region of the Far East is telling. A couple of decades ago,

the island to the north of Japan was merely an afterthought

in Russia’s energy strategy; now, it’s an integral and fully

integrated member of the global oil and gas community.

Kamchatka, many believe, is heading in that direction. Various

estimates have put the region’s oil reserves at up to 10 billion

barrels of recoverable oil, while government deputy chairman

Yuriy Zubar does not dismiss the possibility that the region

“will in the future be in a position to export its considerable gas

reserves to China, and to other parts of East Asia. We’re now in

the process of researching how much is down there, and how best

to tap into our reserves.” Oil and gas could be recoverable both

onshore and offshore, in fields in the Sea of Okhotsk, believes

minister of natural resources and ecology of Kamchatskiy krai,

Vasiliy Priydun. “We’re only in the early stages of drilling and

exploring,” he says. “But we do know that there are considerable

reserves of both oil and gas to be discovered in the region.”

Asiatic and Western European mining companies are

showing interest in developing the energy coal deposits

discovered in the northern and central parts of the peninsula.

Reserves of high-quality coal concealed underground in

Kamchatka exceed 250 million tonnes. However, mastering

these deposits will require substantial logistical costs because of

the difficulty of accessing the location.

Precious metals potentialKamchatka’s most important mining reserves are gold,

silver, platinum, nickel and tin. A positive geological and

economic assessment has been given to over 20 gold ore

areas, six copper and copper-nickel and two tin areas. The

region undoubtedly has the potential to make it a significant

precious metal supplier in years to come. The potential

is in what Kamchatka has to extract; most of the area is

unexplored, which of course carries a risk, but also requires

significant input from pioneer investors.

Subbota points to the “great reserves of silver and gold in the

region”. The region contains over 400 gold ore deposits and

mineralization points, most of which remain unexplored.

Priydun says mining firms are actively exploring potentially

rich seams of copper ore and nickel. “We are focused on

determining exactly what minerals are down there, and what

grade they are. It is highly likely that there is more down there

than any of us realize. We are at the beginning of a decades-

long investment story that will bring wealth and opportunity

both to investors and to the region itself.”

Mining firms are drawn to a region on the cusp of turning into a major new producer of energy, minerals and precious metals

Digging in

“We’re now

in the process

of researching

how much is

down there,

and how best

to tap into our

reserves”

Yuriy Zubar

Marina Subbota

www.euromoney.com SPECIAL REPORT : KAMCHATKA · September 2014 15

Local authorities have plans to boost the production of gold

to 10 tonnes a year, from 2.5 tonnes at present, and silver

production to 15 tonnes from 2 tonnes. The timing, with Asian

economies stockpiling gold and silver in record amounts, could

not be better. Mining firms are increasingly drawn to a region

on the cusp of turning into a major new producer of energy,

minerals and precious metals.

One of the largest participants in the precious metals

sector is Zoloto Kamchatki, whose controlling company,

Interminerals, recently moved its head office from Moscow to

Kamchatka. The holding company has six mining companies,

which hold nine licences to extract precious metals. The

controlling company is seeking investors wishing to invest in

geological survey works and the creation of an infrastructure in

the licensed areas.

In 2013, Interminerals extracted 1.5 tonnes of gold.

According to Yuri Garashchenko, director for interaction

between Interminerals and central government, it is expected

that this volume will be doubled in 2015 and rise to 10-12

tonnes by 2025. Investments in principal funds and geological

surveys by one of the Interminerals-controlled companies total

Rub7 billion ($200 million). Of particular interest to outside

investors will be the project at the Baranyevskoye gold and

silver deposit in central Kamchatka. The mining company has

the necessary licences, but is seeking partners able to build out

much-needed local infrastructure.

Another example of successful activity in mastering the

region’s gold ore deposits is Sigma, a company dedicated

to long-term work in the region. Its main focus is to tap

the vast Ozernovskoye gold ore deposit in the inaccessible

Karaginskiy district of Kamchatskiy region. The company

has an underground resource exploitation licence for this

deposit which runs out in 2030. Total investments since

2005 now total $110 million, and the company has carried

out substantial geological survey work prior to exploring the

deposit as well as engineering surveys. By 2018 it is planned

that Sigma will be extracting 2 tonnes of gold each year. The

mine is expected to contain around 104 tonnes of gold, but

that total may rise. Sigma is looking for new investors to take

part in the building and completion of the mine. It is focused

on looking for project financing partners, and on financing

and building the infrastructure surrounding five separate

extraction sites. The firm also notes the potentially plentiful

reserves of platinum in the region, particularly along the

central ridge.

Protecting the environmentThe regional authorities are looking at ways to combine

the preservation of the area’s unique natural beauty with

developing its investment potential, while stimulating

the long-term interests of investors seeking to profit from

the region’s mineral reserves. This emphasizes the region’s

readiness to monitor the balance between the requirement to

preserve the environment, Kamchatka’s most important asset,

and the interests of investors.

“The rights of investors in our territory are protected,”

states Oxana Gerasimova, deputy minister of economic

development, business and trade of Kamchatskiy krai. The

key investors conducting long-term projects in the region will

be given state financial and non-financial support in their

investment activity, including tax benefits, state guarantees

and regional budget subsidies.

The great resource potential of the peninsula, the interest of

regional authorities, and the corresponding tax reliefs, will all

be real incentives for mastering the mineral and raw material

complex of the region. Kamchatka was slow off the mark in

the 1990s as the rest of the Russian Federation’s economy grew,

but it is more than making up for lost time. This is a great

place, and a great time, to invest in one of the great mining

stories of the next several decades.

Preparatory work for the mining on the Ametistovoe deposit

SPECIAL REPORT : KAMCHATKA · September 2014 www.euromoney.com16

Northern Sea Route

MANY INVESTORS KNOW Kamchatka only as lying on the edge

of the Russian Federation: beautiful, wild, rugged, crammed with

natural resources – but isolated. The last part of that equation is

about to change. Global commerce has always adapted to, and

profited from, expediency. Two-way west-east trade benefited

from the opening of the Suez Canal in 1869, then accelerated

further when the Panama Canal opened in 1914.

Many believe the next great boost will come from the opening

of the Northern Sea Route (NSR), linking Europe and Asia via

the Arctic Ocean. And Kamchatka and its capital, Petropavlovsk-

Kamchatskiy, which lie at the eastern end of that route, stand

to benefit perhaps more than any other region from the route’s

expansion in the decades to come.

The NSR was first broached as a possible trade route during the

Soviet era, when icebreakers forged great channels in the Arctic

ice between the northern hemisphere’s late spring and early

autumn. In recent years, as the planet’s warming has caused the

Arctic ice to thin earlier in the season, the NSR has become a

viable long-term trade route. The journey between Shanghai and

Rotterdam is 5,000 kilometres shorter via the NSR than through

the Suez Canal, while offering none of the latter’s added political

and security-related unpredictability.

The NSR’s rise has begun. In August 2013, the director-general

of Moscow-based shipping firm Sovcomflot, Sergey Frank, told

Russian President Vladimir Putin that the route would soon be

opened year-round to western-bound maritime trade, and for up

to five months of the year to east-bound trade. Total commercial

shipping on the route doubled in 2013, to more than 1.6 million

tonnes, according to the Arctic Logistics Information office, a

Russian-Norwegian information service. Major trading nations are

already eyeing the route between Kamchatka and Murmansk in

the west – and beyond – as a viable long-term shipping route.

Trans-shipment hubIt’s hard to underestimate the importance to Kamchatka’s

economic future. Authorities in Petropavlovsk-Kamchatskiy are

building a new, deep-water port, which will turn the city into a

leading regional trans-shipment hub capable of processing trade

as well as providing technical assistance to ships in need of repair.

Kamchatka’s governor, Vladimir Ilyukhin, is keen to secure more

foreign and domestic capital to invest in infrastructure.

Vasiliy Priydun, Kamchatka’s minister of natural resources

and ecology, believes the NSR will intrinsically provide a “great

opportunity to attract investors of all stripes”. Head of the region’s

Travel and External Affairs Agency Gevork Shkhiyan points to

the region’s future as a natural stopping-off point for cruise ships

looking to ply the summer waters of the Arctic. “Together with

our partners, we want to promote Kamchatka’s future as a key

destination for global and Russian cruise liners. This is vital to the

region’s future,” believes Shkhiyan.

“Kamchatka is not widely seen as being a natural tourism

destination at present. Taking into consideration the new

infrastructure we are planning, both in terms of ports and roads

as well as tourism services, as well as the increasing importance of

the Northern Sea Route, that will change completely over the near

term, and investors will want to be part of this investment story.”

As the route opens for more of the year to shipping, it will also

become an increasingly important lynchpin of global maritime

trade, bringing the great economic nations of the Pacific Rim

closer to key trading partners in northern Europe. “The NSR

minimizes east-west shipping and transport times. It is quicker,

safer, and cheaper to use than any other major maritime transport

route, and Kamchatka lies at its nexus,” notes Yuriy Zubar, deputy

chairman of the Kamchatka government.

It’s hard to argue with this point of view. Kamchatka’s

economic future is increasingly assured. However, as the NSR

opens up, and as cruise liners and container ships start to

transport goods and passengers via the Arctic Ocean, rather than

through the Suez Canal, it will become increasingly integral to

global trade. Kamchatka’s time has come.

Kamchatka’s isolation is coming to an end with the opening of the Northern Sea Route, bringing a raft of other benefits in its wake

Gateway to the Arctic

See and trade port of Petropavlovsk-Kamchatskiy

www.euromoney.com SPECIAL REPORT : KAMCHATKA · September 2014 17

MANY ACTIVITIES ARE associated with Kamchatka but agriculture

does not always spring to mind. It should. Few industries are as

reliably entrepreneurial, or as significant in providing sustenance

for a country or region, than the food industry.

One of the key advantages of Kamchatka, and of huge value,

is drinking water. From China to the Middle East, nation states

are seeking new ways to slake their people’s thirst. Some build

desalination plants; others boost industrial and household

efficiency to staunch water usage.

Kamchatka has no such problems. The region boasts some

of the cleanest water on the planet, from its rivers and lakes

to underground aquifers. Vasiliy Priydun, minister of national

resources and ecology of Kamchatskiy krai, notes that pure

drinking and thermal waters are “two of the region’s great natural

resources”. It is planning to export water in bulk and as branded

bottled water to Southeast Asia – notably Indonesia, Malaysia

and Singapore. However, further investment is needed to turn

the Kamchatka brand into a global phenomenon. “We need

investment and investors who can help take our water industry to

the next level,” says Priydun. “It is world-class water – the brand

should sell itself. We just need a little help.”

Investors move inA more complex task is the attraction of capital into the food

industry. In the 1990s, food production waned as fields fell

fallow. Investment capital had been focused on established

sectors such as raw materials, fishing and tourism. But that

process has now reversed. Rising numbers of entrepreneurs see

the region as a new source of fresh food, capable of meeting

demand, not just in Kamchatka but across Asia and the rest of

the Russian Federation.

Vladimir Rubakhin, director-general of Agrotek, is one such

far-sighted investor. His company has invested heavily in

livestock farming: in just 18 months, he has turned a local firm

into one of the Far East’s largest pork producers, importing

thousands of pigs and sows from Canada. His flagship farm,

in the countryside round Elizovo, north of Petropavlovsk-

Kamchatskiy, produces 1,300 tonnes of fresh meat a year, and he

plans to more than triple that by 2017.

Agriculture is emerging as a key growth story in Kamchatka,

a region blessed both with swathes of arable land and a sizable

and hard-working rural population. In the past, the region

suffered from its relative isolation: food had to be imported from

Asia at considerable cost. “Everything used to arrive here by sea

and air,” Rubakhin says. “So agriculture is very important for us.

What’s surprising is how great the local climate is for agriculture

and food production – the winters are temperate, and it doesn’t

get too hot in summer.”

Value chainAnd Rubakhin plans to expand. Agrotek is buying land near

Vladivostok, close to the border with North Korea, with the aim

of exporting his products across the region. “We want to create

a complete vertical value chain,” he says. “Agrotek does not yet

have this kind of brand, but the talk has been of producing a

popular brand.” The firm has already invested more than Rub1

billion ($28 million) in local production and that number is set

to rise, with Rubakhin seeking to make the region self-sufficient

over the next several years. And that is only the start: “We

welcome other investors to come and invest in the region. It’s

big enough for everyone.”

The firm plans to involve itself in the new Agropark, north

of Petropavlovsk-Kamchatskiy, and will be the main producer

of food products in years to come. According to Rubakhin, “the

new park will benefit from the full support of the Kamchatka

government. The next step will be to modernize our facilities,

and to introduce world-class technology to help boost

production. Our main future aim is to become a leading food

producer in eastern Russia.”

That is being aided by the introduction of special lighting and

heating lamps from the Netherlands to help grow salad crops all

year round in new greenhouses. Local authorities are also keen

to build new agricultural cooperatives and intensive production

complexes that help smaller farmers get a fair market price.

Agribusiness may not always have been a major industry

across the peninsula. But with its ample, pure water reserves and

thousands of hectares of land, much of it now being harvested

again for the first time in decades, the region now has the

opportunity to become a major and powerful new provider of

food and water. Agrotek is at the heart of that story. There is

plenty of room for more companies, and more investors, for

many years to come.

Rich agricultural land and plentiful water supplies are among Kamchatka’s formerly neglected assets

Growth story

Agrotek

The natural wealth of Kamchatka is fresh water

SPECIAL REPORT : KAMCHATKA · September 2014 www.euromoney.com18

Fishing

IT’S HARD TO imagine Kamchatka without fish. The two go

together like gin and tonic, or strawberries and cream. The

fishing industry is integral to the region’s economy, a major

provider of jobs and wealth. Kamchatka is widely known as

one of the most remarkable fishing areas in the world, and the

opportunities for recreational fishing generate a substantial part

of overall tourism revenue. Many visitors come to Kamchatka

exclusively to fish in a genuinely wild area, whether in the open

sea or in distant mountain rivers.

Kamchatka’s governor, Vladimir Ilyukhin, notes that the

region is blessed with vast water-based biological resources. The

waters around the peninsula contain around 2 million tonnes’

worth of catchable fish and seafood, a list that includes pollock,

cod, herring, plaice, halibut, perch, mackerel and Pacific salmon.

During the last six years, the area has led the Far East in

terms of overall fish catch and production. According to

Vladimir Galitsyn, deputy chairman of the government

of Kamchatskiy krai and minister for fisheries, the region

accounts for more than 20% of Russia’s entire catch. Every

year, Kamchatka companies produce over 800,000 of fish, some

250,000-300,000 tonnes of which is exported to countries

across the Asia Pacific region, including South Korea, China

and Japan. The remainder is sold domestically on the Russian

market. A wide range of Kamchatka-sourced fish produce is

sold in markets and shops all over the peninsula. Specialist

shops in the large towns offer everything from caviar to the

best wild salmon on the planet.

Marina Subbota, deputy chairman of the Kamchatka regional

government, states that fishing remains the region’s leading

industry. Other sectors are coming up hard on the rails, from

tourism to mining. However, it is the catching and processing

of fish, a natural resource that the world desperately needs, that

remains the leading revenue generator.

Addressing problemsDevelopment of the industry is a key task for the authorities.

The state, at both federal and regional level, is providing all

possible support. Addressing problems including the creation

of a modern legal base, the long-term setting of quotas and

allocated areas, and the creation of tax benefits and preferences,

have provided real impetus to the development of the fishing

industry across the region. Total private investment in the

industry across the region over the past six years, including

shore-based infrastructure, has reached Rub13 billion ($360

million). State support programmes include the construction of

fishing vessels, while 16 modern high-technology fish-processing

factories have opened on the peninsula, creating 2,000 jobs.

One of the most interesting investment projects now being

realized in Kamchatka – in fact, the largest in the Far East - involves

the building and modernization of a Rub1.2 billion fish-storage

workshop on the premises of Ozernovskiy RKZ No 55, in the

village of Ozernovskiy in the Ust-Bolsheretskiy district. The project

aims to produce fish more profitably and efficiently, thereby

increasing the availability of high-quality Kamchatka fish on the

Famous for its unsurpassed Pacific salmon resources, Kamchatka’s fishing industry remains a mainstay of the peninsula’s economy

In the pink

Imag

e: S

erge

y G

orsh

kov

www.euromoney.com SPECIAL REPORT : KAMCHATKA · September 2014 19

domestic and foreign markets. The project will vastly increase

production capacity (to 350 tonnes of frozen fish produce a day

and 35,000 cans of fish paste a day), and will help the factory reach

a whole new technological level throughout its production cycle.

Another source of pride in the area is an innovative project to

modernize a high-technology fish-processing complex based in

the Khaylulya River in Karaginskiy district, with output capacity of

170 tonnes a day, and to modernize the production transport fleet,

a process that will cost some Rub500 million. The project plans to

introduce an entirely automated conveyer processing system. The

newly installed equipment constitutes a complete processing cycle,

from input to waste disposal, including a first-rate purification

process, and the production of liquid ice. Total production issue

could be up to 300 tonnes of finished product a day, including

medical-quality fish oils.

Widening the resource baseGalitsyn notes that the development potential of the fishing

industry in Kamchatka is connected directly with the

development and widening of the resources base of offshore

fishing, the development of onshore processing and the renewal

of the regional fishing fleet. In short, this involves the creation

of an entire horizontal production chain from catch to storage

to processing to distribution, ending with the buyer and vendor.

Particular attention is also being paid to development of

aquaculture across the region, most notably to salmon farming.

Pacific salmon is the region’s most valuable resource and

a great Russian achievement. Kamchatka’s salmon industry

is supplied almost exclusively from naturally occurring local

fish stocks. With its unparalleled piscine potential, Kamchatka

is practically the only area in the Asia Pacific region where

stocks of Pacific salmon remain virtually untouched, in natural

abundance and at unsurpassable levels of quality. Five processing

facilities across the region ensure that the salmon population

rarely dips in number or in size, remaining largely untouched by

human intervention.

Considering the wealth of experience and the indisputably

positive results in artificial salmon reproduction achieved by

Japan, the US and by Russia’s Sakhalin region, the Kamchatka

government has decided to provide state support to investors in

the construction of salmon processing factories in Kamchatka.

Within the framework of the programme, the region plans

to build 14 factories in the years ahead. Using the latest

projections, this will see the annual catch of Pacific salmon rise

by between 7,000 and 10,000 tonnes a year.

“Kamchatka is practically the only area in

the Asia Pacific region where stocks of Pacific

salmon remain virtually untouched, in natural

abundance and at unsurpassable levels of

quality”

Vladimir Galitsyn

Fish farm processing

SPECIAL REPORT : KAMCHATKA · September 2014 www.euromoney.com20

New investment

KAMCHATKA HAS HUGE investment potential, principally

because of its great wealth of natural resources. The region offers

vast aquatic, biological, mineral and energy resources, as well as

unique opportunities for developing tourism. It is also of great

significance in the world transport system. The presence of an

ice-free port on the Northern Sea Route, and the advantageous

geographical position where airline routes intersect has opened

the potential for creation of a transport hub that connects North

America, Southeast Asia and Europe.

Investment capital is flowing into the region in ever-greater

amounts in search of higher returns. Responsibility for the

creation of favourable conditions for investors rests with the

ministry for economic development, business and trade of

Kamchatskiy krai. According to data from this department, a total

of Rub32 billion ($950 million) has so far been invested in the

region. Of this total, about 70% was obtained from non-budgetary

sources. By 2020, says Oxana Gerasimova, deputy minister

for economic development of Kamchatskiy krai, that figure is

expected to increase tenfold. Much of the total will be directly

contributed by domestic and foreign investors in the fishing and

mining industries, as well as in tourism and the construction of

new infrastructure, including the building of roads and a new

seaport and airport.

Kamchatka’s government, meanwhile, is working to create

a favourable investment climate. Financial and non-financial

measures are being taken to provide investors in projects on

the peninsula with state support. This most notably includes

provision of tax benefits, state guarantees, state co-finance of

investment projects from the Russian Federation Investment

Fund and the provision of state subsidies and resources from the

Kamchatka Investment Fund for new engineering, energy and

transport systems.

Founded on fishA number of industries offer huge potential for investors. Take

fishing, which plays a fundamental role in the region’s economy.

The region’s most attractive and profitable industry, it boasts the

national title of Russia’s ‘Leading Fisheries Region’. Kamchatka’s

fishing industry is vital to the regional and national economy,

contributing more than a fifth of Russia’s annual catch.

Kamchatka’s authorities have long recognized the profit

inherent in the stable development of the fishing industry.

“Sustainability is our watchword,” insists Vladimir Galitsyn,

deputy chairman of the government of Kamchatskiy krai. Local

authorities are also working actively to develop the industry.

Kamchatka’s government is supporting investment across

the fishing industry, with the aim of promoting Kamchatka-

branded salmon worldwide, on a par with Scottish, Alaskan

and Norwegian salmon. Galitsyn, who is responsible for the

industry’s rapid development, notes that thanks to the provision

of state support, the fishing industry has, during the period

2008-13, invested almost Rub13 billion ($360 million). He adds

that 16 onshore factories have been built, “aimed at producing

high-quality and profitable fish products, with brand new

processing technology”.

The region is gradually being transformed into a fish processing

and logistics hub. More than Rub1 billion is being invested in the

construction of a high-tech factory in Ivashka, Karaginsky district,

capable of processing up to 280 tonnes of fish a year. The fish

storage centre at Ozernovskiy, in the southwest of the peninsula,

is being modernized at a cost of Rub1.2 billion, with production

capacity increasing to 350 tonnes of processed fish annually. The

regional government is interested in channelling investment into

both projects and into many small fish catching and processing

factories, which will continue to spring up in the region.

Sport fishing has over the past few years become ever more

popular. Many tourism companies now offer fishing tours in

some of the peninsula’s cleanest rivers. The great attraction is the

chance to catch “the cleanest and most genetically ideal salmon”.

Until the 1990s Kamchatka was closed for visitors, meaning

that its unique nature has been preserved, offering excellent

opportunities for fishing and relaxation.

Abundant mineralsOne of the most promising areas of development in Kamchatka’s

economy lies in the extraction of minerals and raw materials.

The region is abundantly rich in the deposits of gold ore and

scattered gold, silver, platinum, dark metals, nickel, copper, tin,

lead, zinc and mercury. There are significant deposits of natural

gas, coal, peat and, the authorities hope, high-grade oil. Russian

mining company Interminerals has recently opened an office in

the regional capital, Petropavlovsk-Kamchatskiy. The company

is now carrying out geological surveys on deposits, in search of

new gold and platinum reserves. It has already invested Rub7

billion in a new gold extraction project, in keeping with its plan

of increasing the volume of polished metals to 4 tonnes in 2014

from 2 tonnes in 2013.

And this figure is set to rise fast. According to Yuri

Garashchenko, director of Interminerals, two promising deposits

have been discovered in the north. One may contain up to 90

tonnes’ worth of gold and silver, and the other up to 200 tonnes.

Garashchenko says the company is seeking to attract both

domestic and foreign investors interested in opening up and

profiting from the potential of the region.

Maximizing profit during the construction and management

of new and explored deposits has also increased demand for

qualified and experienced workers. Sigma, another major Russian

company, based in St Petersburg, is promoting a project to build a

Investors are becoming increasingly aware that Kamchatka has the resources and opportunities to support a long-term growth story

Land of opportunity

www.euromoney.com SPECIAL REPORT : KAMCHATKA · September 2014 21

gold-extraction plant at Ozernovskiy, at a cost of Rub12.6 billion.

This will also require several billion rubles worth of investment in

the years ahead. The regional government is set to pump Rub21

billion into developing the industry over the next five years,

to improve the transport and energy infrastructure for priority

projects in the mineral and raw materials industry.

Renewable energiesKamchatka is also interested in satisfying energy demands

through renewable resources. JSC “Mobile Energy” is building

wind-diesel stations in small villages in the north of Kamchatka,

with the aim of increasing energy output in Kamchatka’s isolated

territories to almost 1.5MWh. This project, costing Rub2.3 billion,

will be completed in 2016.

Hydropower is also developing actively in Kamchatka. Existing

electricity stations meet the region’s needs, although the cost of

electrical energy is relatively high and using renewable energy

resources is becoming more convenient. Construction of the

Zhupanovskiy hydroelectric power station cascade, a huge new

investment scheme, is projected to cost about Rub90 billion.

This project includes three main ranges. Electrical energy

obtained from water resources is much cheaper, and investors

will find it more attractive to invest in projects to build a series of

energy-intensive ore and non-ore fossil fuel production centres

within the framework of creating the Petropavlovsk-Kamchatskiy

industrial cluster. A total of 310 kilometres of power lines will

be constructed during creation of the project, creating a ring

that ensures provision of sufficient energy to consumers across

Kamchatka.

Plenty for tourists Today, Kamchatka is also determined to create new investment

opportunities for interested parties, and of particular interest in

this context is the tourist industry. A new airport, will be built

in the near future, should handle the vast majority of incoming

flights. Most of the tourists will be Chinese and Japanese, who,

like travellers from North America and Europe, enjoy skiing,

fishing and relaxation.

Andrey Ivanov, minister of sport and youth policy for

Kamchatskiy krai, considers that the peninsula has every chance

of becoming a training centre for national sports men and

women in the run-up to the 2018 Winter Olympics. The region

is a special place for professional biathletes, as well as being a

renowned dogsledding centre. No trip to Kamchatka is complete

without a race across the snow in a dogsled. Medicinal tourism is

also developing “very fast at present”, notes Ivanov, thanks to the

pleasant and equable climate in both summer and winter.

Tourism development in the region will facilitate the creation

of the Paratunka tourism and recreation cluster, 40 kilometres

from Petropavlovsk-Kamchatskiy and 30 kilometres from the

airport. The estimated cost of the project is Rub7 billion. The new

cluster will comprise a number of hotels, a modern spa and health

centre, a water park, a camping area, ski slopes, cycling routes, an

entertainments complex, accommodation for year-round sporting

activities, a museum and exhibition centre, and a mountain

skiing centre. The cost of the infrastructure, planned to be

completed in 2021, will exceed Rub1.4 billion. Local authorities

plan to attract additional capital from private investors from all

over the world to build the tourist centre, with the infrastructure

financed from budgetary resources.

Agricultural KlondikeFinally, there is agribusiness. A few years ago, this would have

been deemed an unlikely growth industry. Kamchatka was for

many years seen as being both far from major population centres,

and lacking in the infrastructure and investment needed to carry

out major agriculture projects. All that has changed. Vladimir

Rubakhin, general director of leading local food production

company “Agrotek”, described his first impression of the region

as of “a great and wonderful Klondike” – a huge swathe of arable

land with stunning potential.

Agrotek has expanded exponentially in recent years, producing

1,000 tonnes of hay and 1,300 tonnes of fresh meat – mostly

pork – a year, with the aim of tripling production by 2017. The

company’s new production centres are to the north of the capital

and are investing heavily in greenhouses in which vegetable

cultivation is planned, while funds are being invested in restoring

fallow arable land to full health. Kamchatka’s government is

supporting the investment project, initiated by Agrotek.

Rubakhin’s original vision of Kamchatka as a modern Klondike

is correct, with only one exception. The Alaskan gold rush of the

1890s made a handful of early investors rich, but bankrupted tens

of thousands more. Kamchatka’s growth story, built on a wealth

of natural resources, will benefit the long-term investors as much

as the early birds.

Agrotek is one of the Far East’s largest pork producers

Establishment of tourist recreational cluster “Paratunka”